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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________to ______________
Commission file number 0-24751
SALISBURY BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Connecticut 06-1514263
- -------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5 Bissell Street, Lakeville, CT 06039
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 860-435-9801
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common stock par value $.10 per share
Name of exchange on which registered: American Stock Exchange
Indicate by check mark whether the registrant: (1)has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At March 3, 2000, the aggregate market value of the outstanding common stock,
exclusive of the shares held by affiliates of the registrant, was
$24,155,779.75.
The number of shares outstanding of the registrant's common stock, $.10 par
value, was 1,498,179 at March 3, 2000.
Documents Incorporated by Reference: None
TABLE OF CONTENTS
Page
Part I
Item 1 - Business 3
(a) General Development of the Business 3
(b) Financial Information about Industry Segments 3
(c) Narrative Description of Business 4
(d) Financial Information about Foreign and Domestic
Operations and Export Sales 8
Item 2 - Properties 13
Item 3 - Legal Proceedings 14
Item 4 - Submission of Matters to a Vote of Security Holders 14
Part II
Item 5 - Market for Registrant"s Common Equity and
Related Stockholder Matters 14
(a) Market Information 14
(b) Holders 14
(c) Dividends 14
Item 6 - Selected Financial Data 15
Item 7 - Management"s Discussion and Analysis of
Financial Condition and Results of Operations 16
Item 7A- Quantitative and Qualitative Disclosures
about Market Risk 28
Item 8 - Financial Statements and Supplementary Data 28
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 30
Part III
Item 10 -Directors and Executive Officers of the Registrant 30
Item 11 -Executive Compensation 32
Item 12 -Security Ownership of Certain Beneficial Owners
and Management 34
Item 13-Certain Relationships and Related Transactions 35
Part IV
Item 14 - Exhibits, Financial Statements and Reports on Form 8-K 35
Signatures 37
2
PART I
ITEM 1. BUSINESS
(a) General Development of the Business
Salisbury Bancorp, Inc. (AMEX:SAL) (the "Company") is a Connecticut corporation
that was formed in 1998. Its primary activity is to act as the holding company
for its sole subsidiary, the Salisbury Bank and Trust Company (the "Bank") which
accounts for most of the Company"s net income. The Bank assumed its present name
in 1925 following the acquisition by the Robbins Burrall Trust Company of the
Salisbury Savings Society. The Robbins Burrall Trust Company was incorporated in
1909 as the successor to a private banking firm established in 1874. The
Salisbury Savings Society was incorporated in 1848. The Bank is chartered as a
state bank and trust company by the State of Connecticut and its deposits are
insured by the Federal Deposit Insurance Corporation in accordance with the
Federal Deposit Insurance Act. The Bank"s main office is at 5 Bissell Street,
Lakeville, Connecticut 06039. Its telephone number is (860) 435-9801.
The Bank serves its customers from its three (3) offices which are located in
Lakeville, Salisbury and Sharon, Connecticut. Substantially, all of the Bank"s
customers reside in or maintain their principal offices in Litchfield County,
Connecticut or in Dutchess County or Columbia County, New York or in Berkshire
County, Massachusetts.
(b) Financial Information about Industry Segments
The Company's products and services are all of the nature of commercial banking.
Lending
Lending is the principal business of the Bank and loans represent the largest
portion of the Bank's assets. The portfolio consists of many types of loans.
These include residential mortgages, home equity lines of credit, monthly
installment loans for consumers as well as commercial loans which include lines
of credit, short term loans, Small Business Administration ("SBA") loans and
real estate loans for business customers.
The primary lending activity has been the origination of first mortgage loans
for the purchase, refinance or construction of residential properties in the
Bank"s market area. The Bank has also increased its lending activity through
home equity loans. Loans secured by mortgages on a borrower's principal
residence are generally viewed as the least vulnerable to major economic changes
and at the same time provide a significant yet relatively stable source of
interest income. Presently, loans are maintained in the Bank"s portfolio and are
completely serviced by the Bank.
The Bank also originates a variety of other loans for consumer and business
purposes. Although these loans represent a smaller percentage of the total loan
portfolio, the Bank is in a position of being a full service retail lender to
its consumers and a full service commercial lender to its business customers.
Investments
The Company"s investment portfolio is also an important component of the Balance
Sheet. It provides a source of earnings in the form of interest and dividends.
It also plays a role in the interest rate risk management of the Company and it
provides a source of liquidity.
The portfolio is comprised primarily of U.S. Government sponsored agencies, U.S.
Treasury and mortgage-backed securities. At December 31, 1999, it totaled
$78,715,000 which represents approximately 36.55% of total assets and it
produced interest and dividend income of $4,588,000 for the year 1999 as
compared with $3,432,138 for 1998.
3
Deposits and Borrowings
The Bank"s primary sources of funds are deposits, borrowings and principal
payments on loans. Although competition for funds from non-banking institutions
remains aggressive, the Bank continues its efforts to build multiple account
relationships with its customers. As a result, average daily deposits increased
2.60% to $157,454,000 during 1999.
The Bank is a member of the Federal Home Loan Bank of Boston. Borrowings totaled
$39,712,000 at December 31, 1999 as compared with $41,120,000 at December 31,
1998.
For additional information relating to the asset, deposit and borrowing
components of the Company, see Item 7, Management"s Discussion and Analysis and
the accompanying Consolidated Financial Statements.
Fiduciary
The Bank provides trust, investment and financial planning services to its
customers.
The Bank has a full service Trust Department. Among the services offered are:
custody and agency accounts, estate planning and estate settlement. Another
service is that of serving as Guardian or Conservator of estates and managing
the financial position of Guardianships or Conservatorships. Self directed IRAs
and Pension plans are also offered.
Through a contracted relationship with INVEST Financial Services, the Bank
assists individuals and business entities in achieving their financial
objectives through a no-cost financial planning process that analyses their
circumstances, identifies their goals and makes specific suggestions to
accomplish their goals. These suggestions may be implemented if clients so
choose, through a range of mutual funds, stocks, bonds, annuities, life
insurance and other investment products offered by INVEST.
All Others
The Company also offers safe deposit rentals, foreign exchange, a full menu of
elective fund transfer services and other ancillary services to businesses and
individuals.
(c) Narrative Description of Business
Salisbury Bancorp, Inc. is a bank holding company, which as described above, has
one subsidiary, Salisbury Bank and Trust Company, (the "Bank").
The Bank is a full-service commercial bank and its activities encompass a broad
range of services which includes a complete menu of deposit services, multiple
mortgage products and various other types of loans for both business and
personal needs. Full trust services are also available. The Bank owns and
operates one subsidiary, SBT Realty, Inc. which is incorporated under the laws
of the State of New York. SBT Realty, Inc. holds and manages bank owned real
estate situated in New York State.
Competition
The Bank encounters competition in all phases of its business. Several
competitive financial institutions have offices in the Salisbury, Connecticut
banking market. In addition, the Bank competes with banking institutions located
in Massachusetts and New York. A number of these institutions have higher
lending limits and greater resources than the Bank and provide certain services
that the Bank does not provide.
4
The banking business in the area served by the Bank is very competitive. Based
on information published by the Federal Reserve Bank of Boston in June 1998, the
Salisbury, Connecticut banking market consists of eight (8) commercial and
savings banks with a total of twelve (12) banking offices. The Bank has a 44.74
percent market share of deposits in the market.
SALISBURY, CONNECTICUT
ALL INSTITUTIONS, BY TOTAL DEPOSITS
Number of Dollars in Total Deposits
Branches Thousands (Percent)
-------- --------- ---------
l. Salisbury Bancorp, Lakeville .................... 2 $148,000 44.74%
(Salisbury Bank & Trust Company) (2) ($148,000) ---
2. Canaan National Bancorp, Canaan.................. 1 $ 48,000 14.47%
(Canaan National Bank) (1) ($48,000) ---
3. NewMil Bancorp, New Milford...................... 2 $ 33,000 9.84%
(New Milford Savings Bank) (2) ($ 33,000) ---
4. Iron Bancshares, Inc., Salisbury.................. 3 $ 29,000 8.85%
(National Iron Bank) (3) ($ 29,000) ---
5. Torrington Savings Bank........................... 1 $ 26,000 7.94%
6. People"s Mutual Holdings, Bridgeport............ 1 $ 20,000 6.12%
(Peoples Bank) (1) ($ 20,000) ---
7. Union Savings Bank............................... 1 $ 15,000 4.46%
8. Litchfield Bancorp................................ 1 $ 12,000 3.58%
- -- -- -------- ----
All Commercial Banking and Thrift Organizations 12 $331,000 100.00%
Herfindahl-Hirschman Index: 2,520
Three Firm Concentration Ratio: 69.05%
Note: The table is based on June 30, 1998 deposit data. It reflects all mergers
and bank holding company acquisitions completed by August 31, 1999.
Banks compete on the basis of price, including rates paid on deposits and
charged on borrowings, convenience and quality of service. Savings and loan
associations are able to compete aggressively with commercial banks in the
important area of consumer lending. Credit unions and small loan companies are
each significant factors in the consumer market. Insurance companies, investment
firms, credit and mortgage companies, brokerage firms cash management accounts,
money-market funds and retailers are all significant competitors for various
types of business. Many non-bank competitors are not subject to the extensive
regulation described below under "LEGISLATION, REGULATION AND SUPERVISION" and
in certain respects may have a competitive advantage over banks in providing
certain services.
In marketing its services, the Bank emphasizes its position as a hometown bank
with personal service, flexibility and prompt responsiveness to the needs of its
customers. Moreover, the Bank competes for both deposits and loans by offering
competitive rates and convenient business hours. In addition to providing
banking services to customers in its primary service areas, the Bank is a member
of the automatic teller machine networks which allow the Bank to deliver certain
financial services to customers regardless of their proximity to the primary
service area of the Bank.
Connecticut has enacted legislation which liberalized banking powers for thrift
institutions thereby improving their competitive position with other banks. In
addition, the Connecticut Interstate Banking Act permits acquisitions of and
mergers with Connecticut banks and bank holding companies with banks and bank
holding companies in other states. Accordingly, it is possible for large
super-regional organizations to enter many new markets including the market
served by the Bank. Certain of these competitors, by virtue of their size and
resources, may enjoy certain efficiencies and competitive advantages over the
Bank in the pricing, delivery, and marketing of their products and services. It
is possible that such legislative authority will increase the number or the size
of financial institutions competing with the Bank for deposits and loans in its
market place, although it is impossible to predict the effect upon competition
of such legislation.
5
Legislation, Regulation and Supervision
General
Virtually every aspect of the business of banking is subject to regulation
including such matters as the amount of reserves that must be established
against various deposits, the establishment of branches, mergers, non-banking
activities and other operations. Numerous laws and regulations also set forth
special restrictions and procedural requirements with respect to the extension
of credit, credit practices, the disclosure of credit terms and discrimination
in credit transactions.
The descriptions of the statutory provisions and regulations applicable to banks
set forth below do not purport to be a complete description of such statutes and
regulations and their effects on the Bank. Proposals to change the laws and
regulations governing the banking industry are frequently introduced in
Congress, in the state legislatures and before the various bank regulatory
agencies. The likelihood and timing of any changes and the impact such changes
might have on the Bank"s future business and earnings are difficult to
determine.
Federal Reserve Board Regulation
The Company is a registered bank holding company under the Bank Holding Company
Act of 1956, as amended (the "BHCA"). It is subject to the supervision and
examination of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") and files with the Federal Reserve Board the reports as
required under the Bank Holding Company Act.
The BHCA generally requires prior approval by the Federal Reserve Board of the
acquisition by the Company of substantially all of the assets or more than five
percent of the voting stock of any bank. The BHCA also allows the Federal
Reserve Board to determine (by order or by regulation) what activities are so
closely related to banking as to be a proper incident of banking, and thus,
whether the Company can engage in such activities. The BHCA prohibits the
Company and the Bank from engaging in certain tie-in arrangements in connection
with any extension of credit, sale of property or furnishing of services.
Federal legislation permits adequately capitalized bank holding companies to
venture across state lines to offer banking services through bank subsidiaries
to a wide geographic market. It is possible for large super-regional
organizations to enter many new markets including the market served by the Bank,
although it is impossible to assess what impact this will have on the Company or
the Bank.
The Federal Reserve Act imposes certain restrictions on loans by the Bank to the
Company and certain other activities, on investments, in their stock or
securities, and on the taking by the Bank of such stock or securities as
collateral security for loans to any borrower.
Under the BHCA and the regulations of the Federal Reserve System promulgated
thereunder ("Regulation Y"), no corporation may become a bank holding company as
defined therein, without prior approval of the Federal Reserve Board. The
Company received the approval to become a bank holding company on June 18, 1998.
The Company will also have to secure prior approval of the Federal Reserve Board
if it wishes to acquire voting shares of any other bank, if after such
acquisition it would own or control more than 5% of the voting share of such
bank. The BHCA imposes limitations upon the Company as to the types of business
in which it may engage.
Regulation Y requires bank holding companies to provide the Federal Reserve
Board with written notice before purchasing or redeeming equity securities if
the gross consideration for the purchase or redemption, when aggregated with the
net consideration paid by the Company for all such purchases or redemptions
during the preceding twelve months, is equal to 10% or more of the Company"s
consolidated net worth. For purposes of Regulation Y, "net consideration" is the
gross consideration paid by a company for all of its equity securities purchased
or redeemed during the period, minus the gross consideration received for all of
its equity securities sold during the period other than as part of a new issue.
However, a bank holding company need not obtain Federal Reserve Board approval
of any equity security redemption when:(i) the bank holding company"s capital
ratios exceed the threshold established for "well-capitalized" state member
banks before and immediately after the redemption; (ii) the bank holding company
is well-
6
managed; and (iii) the bank holding company is not the subject of any unresolved
supervisory issues.
After decades of debate, in November of 1999, Congress passed and President
Clinton signed legislation which repealed the restrictions that prohibited most
affiliations among banking, securities, and insurance firms. The new law, the
Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (S.900),
provides bank holding companies, banks, securities firms, insurance companies,
and investment management firms the option of engaging in a broad range of
financial and related activities by opting to become a "financial holding
company." These holding companies will be subject to oversight by the FRB, in
addition to other regulatory agencies. Under the financial holding company
structure, bank holding companies will have a less-restricted ability to
purchase or establish nonbank subsidiaries which are financial in nature or
which engage in activities which are incidental or complementary to a financial
activity. Additionally, for the first time, securities and insurance firms will
be permitted to purchase full-service banks.
As a general rule, the individual entities within a financial holding company
structure will be regulated according to the type of services
provided-functional regulation. Under this approach, a financial holding company
with banking, securities, and insurance subsidiaries will have to deal with
several regulatory agencies (e.g., appropriate banking agency, SEC, state
insurance commissioner). A financial holding company that is itself an insurance
provider will be subject to FRB oversight, as well as to regulation by the
appropriate state insurance commissioner. Broker/dealer and insurance firms
electing to become financial holding companies will be subject to FRB
regulation. In addition to permitting financial services providers to enter new
lines of business, the new law gives firms the freedom to streamline existing
operations and potentially reduce costs.
The impact that Gramm-Leach-Bliley Act is likely to have on the Bank and the
Company is difficult to predict. While the Act facilitates the ability of
financial institutions to offer a wide range of financial services, large
financial institutions would appear to be the beneficiaries as a result of this
Act because many community banks are less able to devote the capital and
management resources needed to facilitate broad expansion of financial services.
To qualify as a financial holding company, a bank holding company must certify
to the Federal Reserve System that it and its subsidiary banks satisfy the
requisite criteria of being "well-capitalized," "well-managed" and have a CRA
rating of "satisfactory" or better. The Company meets all of the criteria to
qualify as a financial holding company.
Connecticut Regulation
The Company is incorporated in the State of Connecticut and is subject to the
Connecticut Business Corporation Act and the Connecticut Bank Holding Company
Statutes.
As a state-chartered bank and member of the Federal Deposit Insurance
Corporation ("FDIC"), the Bank is subject to regulation both by the Connecticut
Banking Commissioner and by the FDIC. Applicable laws and regulations impose
restrictions and requirements in many areas, including capital requirements,
maintenance of reserves, establishment of new branch offices, mergers, making of
loans and investments, consumer protection, employment practices and other
matters. Any new regulations or amendments to existing regulations may
materially affect the services offered, expenses incurred and/or income
generated by the Bank.
The Connecticut Banking Commissioner regulates the Bank"s internal organization
as well as its deposit, lending and investment activities. The approval of the
Connecticut Banking Commissioner is required, among other things, to open branch
offices and to consummate merger transactions and other business combinations.
The Connecticut Banking Commissioner conducts periodic examinations of the Bank.
The Connecticut banking statutes also restrict the ability of the Bank to
declare cash dividends to its shareholders.
Subject to certain limited exceptions, loans made to any one obligor may not
exceed 15% of the Bank"s capital, surplus, undivided profits and loan reserves.
In addition, under Connecticut law, the beneficial ownership of more than 10% of
any class of voting securities of a bank may not be acquired by any person or
groups of persons acting in concert without the approval of the Connecticut
Banking Commissioner.
7
FDIC Regulation
The FDIC insures the Bank"s deposit accounts in an amount up to $100,000 for
each insured depositor. FDIC insurance of deposits may be terminated by the
FDIC, after notice and a hearing, upon a finding by the FDIC that the insured
institution has engaged in unsafe or unsound practices, or is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, rule or order of, or condition imposed by, the FDIC. A bank"s
failure to meet the minimum capital and risk-based capital guidelines discussed
below, would be considered to be unsafe and unsound banking practices. The Bank,
as a Connecticut-chartered FDIC-insured bank, is regulated by the FDIC in many
of the areas also regulated by the Connecticut Banking Commissioner. The FDIC
also conducts its own periodic examinations of the Bank, and the Bank is
required to submit financial and other reports to the FDIC on a quarterly and
annual basis, or as otherwise required by the FDIC.
FDIC insured banks, such as the Bank, pay premiums to the FDIC for the insurance
of deposits.
Under FDIC regulations, FDIC-insured, state-chartered banks which are not
members of the Federal Reserve System must meet certain minimum capital
requirements, including a leverage capital ratio and a risk-based capital ratio.
See "MANAGEMENT"S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS".
The Community Reinvestment Act ("CRA") requires lenders to identify the
communities served by the institution"s offices and to identify the types of
credit the institution is prepared to extend within such communities. The FDIC
conducts examinations of insured institutions" CRA compliance and rates such
institutions as "Outstanding", "Satisfactory", "Needs to Improve" and
"Substantial Noncompliance". As of its last CRA examination, the Bank received a
rating of "Outstanding". Failure to receive at least a "Satisfactory" rating may
inhibit an institution from undertaking certain activities, including
acquisitions of other financial institutions, which require regulatory approval
based, in part, on CRA compliance considerations. Similarly, failure of a bank
to maintain a CRA rating of "Satisfactory" or better would preclude it or its
holding company from engaging in any new financial activities pursuant to the
Gramm-Leach-Bliley Act. Insurance companies, investment counseling firms and
other businesses and individuals actively compete with the Bank for personal and
corporate trust services and investment counseling services.
Employees
The Company's current workforce at February 29, 2000 was 71 employees of whom 59
were full time and 12 were part time. The employees are not represented by a
collective bargaining unit.
(d) Financial Information about Foreign and Domestic Operations and Export Sales
The Company does not have any foreign business operations or export sales of its
own. However, it does provide financial services including wire transfers and
foreign currency exchange to other businesses involved in foreign trade.
8
STATISTICAL DISCLOSURE REQUIRED PURSUANT TO SECURITIES EXCHANGE ACT,
INDUSTRY GUIDE 3
The statistical disclosures required pursuant to Industry Guide 3, not contained
in Management"s Discussion and Analysis of Financial Condition and Results of
Operations-contained herein, are presented on the following pages of this Report
on Form 10-K.
Page(s) of
Item of Guide 3 This Report
I. Distribution of Assets, Liabilities and Stockholders'
Equity; Interest Rates and Interest Differential 17
II. Investment Portfolio 9
III. Loan Portfolio 10
IV. Summary of Loan Loss Experience 11
V. Deposits 22
VI. Return on Equity and Assets 14
VII. Short-Term Borrowings 12
9
Investment Portfolio
As of December 1994, Salisbury Bank and Trust Company adopted Statement of
Financial Accounting Standard No. 115 (SFAS 115), "Accounting for Certain
Investments in Debt and Equity Securities". SFAS 115 provides for the
categorization of investments into three groups and further provides for the
accounting and reporting treatment of each group. Investments may be classified
as held-to-maturity, available-for-sale, or trading. The Bank does not purchase
or hold any investment securities for the purpose of trading such investments.
The following tables sets forth the carrying amounts of the investment
securities as of December 31:
(dollars in thousands)
1999 1998 1997
---- ---- ----
Available-for-sale securities:
(at fair value)
Equity securities $ 137 $ 116 $ 123
U.S. Treasury securities and other
U.S. government corporations and agencies 33,290 43,578 33,175
Obligations of states and political subdivisions 12,379 9,553 6,983
Corporate securities 0 0 37
Mortgage-backed securities 29,347 25,408 7,193
------ ------ -----
$ 75,153 $ 78,655 $ 47,511
======== ======== ========
Held-to-maturity securities
(at amortized cost)
U.S. Treasury securities and other
U.S. government corporations and agencies $ $ $
Obligations of states and political subdivisions 0 25 857
Mortgage-backed securities 489 554 915
---------------------------------
$ 489 579 $ 1,772
---------------------------------
Federal Home Loan Bank stock $ 2,102 $ 2,056 $ 833
=================================
For the following table, yields are not calculated and presented on a fully
taxable-equivalent ("FTE") basis.
The scheduled maturities of held-to-maturity securities and available-for-sale
securities (other than equity securities) were as follows as of December 31,
1999:
(dollars in thousands)
Under 1-5 5-10 Over 10
1 Year Yield Years Yield Years Yield Years Yield Total
---------------------------------------------------------------------------
Held-to-maturity
securities
(at amortized cost)
U.S. Treasury securities
and other U.S. government
corporations and agencies $ 0 $ 0 $ 0 $ 0 $ 0
Obligations of state and
political subdivisions
Mortgage-backed
securities 489 6.40% 489
Available-for-sale
securities
(at fair value)
U.S. Treasury securities
and other U.S. government
corporations and agencies $ 2,500 5.58% $12,773 6.18% $ 6,549 6.71% $11,468 7.90% $33,290
Obligations of state and
political subdivisions 203 7.46% 2,865 7.58% 9,311 8.09% $12,379
Mortgage-backed
securities 1,521 7.50% 2,831 6.01% 24,995 6.35% $29,347
10
Loan Portfolio Analysis by Category
(dollars in thousands)
December 31
1999 1998 1997 1996 1995
---------------------------------------------------------------------------
Commercial, financial and $ 9,025 $ 10,692 $ 11,575 $ 12,047 $ 13,428
agricultural
Real Estate-construction and 3,382 3,392 4,203 4,839 5,065
land development
Real Estate - residential 86,680 80,451 77,336 75,756 71,283
Real Estate-commercial 15,324 14,909 13,355 13,607 13,948
Consumer 10,698 10,430 10,805 10,433 9,394
Other 364 535 655 743 139
---------------------------------------------------------------------------
125,473 120,409 117,929 117,425 113,257
Allowance for possible loan losses (1,160) (1,260) (1,226) (1,242) (1,160)
Unearned income 0 (6) (12) (34) (14)
---------------------------------------------------------------------------
Net loans $ 124,313 $ 119,143 $ 116,691 $ 116,149 $ 112,083
==========================================================================
There are no industry concentrations in the Bank"s loan portfolio.
The following table shows the maturity of commercial, financial and agricultural
loans, real estate commercial loans and real estate-construction loans
outstanding as of December 31, 1999. Also provided are the amounts due after one
year classified according to the sensitivity to changes in interest rates.
Due after
Due in one one year to Due after
year of less five years five
---------------------------------------
Commercial, financial,
agricultural and real estate commercial $5,215 $2,198 $16,936
Real estate-construction and land development 3,382 0 0
---------------------------------------
$8,597 $2,198 $16,936
Maturities after
One Year with:
Fixed interest rates $1,422 $ 5,984
Variable interest rates 776 10,952
$2,198 $16,936
11
Nonaccrual, Past Due and Restructured Loans
At December 31, 1999, approximately 78% of nonaccrual loans are secured by 1-4
family residential properties. There is one loan 90 days past due and still
accruing as it is scheduled to be brought current during the first quarter of
2000. There is only one restructured loan and it is secured by a 1-4 family
residential property. When a mortgage loan becomes 90 days past due, and there
is not sufficient collateral to cover the principal and accrued interest, the
Bank stops accruing interest unless there are unusual circumstances which
warrant an exception. Generally the only loan types that the Bank reclassifies
to nonaccrual are those secured by real estate. Other types of loans are
generally charged off if they become 90 days or more delinquent
Nonaccrual, Past Due and Restructured Loans
(dollars in thousands)
December 31
1999 1998 1997 1996 1995
-------------------------------------------------------
Nonaccrual $ 473 $1,208 $1,328 $1,316 $1,793
90 days or more past due 10 109 279 49 8
Restructured loans 12 547 764 1,547 2,003
-------------------------------------------------------
Total nonperforming loans $ 495 $1,864 $2,371 $2,912 $3,804
======================================================
Total nonperforming loans as per-
centage of the total loan portfolio 0.39% 1.55% 2.01% 2.48% 3.36%
Allowance for credit losses as a per-
centage of nonperforming loans 234.34% 67.60% 51.71% 42.65% 30.49%
Information with respect to non-accrual and
restructured loans at December 31, 1999, 1998
and 1997 is as follows:
(dollars in thousands) Year Ended December 31
1999 1998 1997
-----------------------------
Interest income that would have been recorded under original terms $37 $83 $84
Gross interest recorded 11 8 7
Foregone interest $26 $75 $77
Summary of Loan Loss Experience
(dollars in thousands)
Year Ended December 31
1999 1998 1997 1996 1995
--------------------------------------------------------------------------------
Balance of the allowance for
loan losses at beginning of year $1,260 $1,226 $1,242 $1,160 $1,309
--------------------------------------------------------------------------------
Charge-offs:
Commercial, financial and
agricultural 1 7 0 19 144
Real estate mortgage 243 53 38 160 262
Consumer 25 52 66 67 22
Total charge-offs 269 112 104 246 428
Recoveries:
Commercial, financial and
agricultural 0 0 11 27 2
Real estate mortgage 19 13 7 7 4
Consumer 30 13 20 19 23
Total recoveries 49 26 38 53 29
Net charge-offs 220 86 66 193 399
Provisions charges to operations 120 120 50 275 250
Balance at end of year $1,160 $1,260 $1,226 $1,242 $1,160
Ratio of net charge-offs to
average loans outstanding .18% .07% .06% .17% .36%
Ratio of allowance for loan losses
to year end loans .93% 1.05% 1.04% 1.07% 1.02%
12
Allocation of the Allowance for Loan Losses
(dollars in thousands)
December 31, 1999 December 31, 1998 December 31, 1997
--------------------------------------------------------------------------------
Percent of Percent of Percent of
Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total
Loans
Commercial, financial and
agricultural $ 160 7.19% $ 182 8.88% $ 190 9.82%
Real estate construction 0 2.70% 0 2.82% 0 3.56%
and land development
Real estate mortgage 941 81.30% 982 79.20% 941 76.90%
Consumer 58 8.52% 95 8.66% 94 9.16%
Other loans 1 .29% 1 .44% 1 .56%
--------------------------------------------------------------------------------
Total allowance $1,160 100.00% $1,260 100.00% $1,226 100.00%
================================================================================
Provisions to the allowance for possible loan losses are charged to operating
expenses and are based on past experience, current economic conditions and
management's judgement of the amount necessary to cover possible losses on the
collection of loans. The Bank records provisions for estimated loan losses,
which are charged against earnings, in the period they are established.
Short-Term Borrowings
(dollars in thousands) December 31
1999 1998 1997
Federal Home Loan Bank Advances
Average interest rate
At year end 5.19% 5.01% 6.37%
For the year 5.19% 6.02% 6.59%
Average amount outstanding during the year $35,954 $15,267 $5,191
Maximum amount outstanding at any month $42,038 $41,120 $6,000
Amount outstanding at year end $39,712 $41,120 $5,497
ITEM 2. PROPERTIES
The Company is not the owner or lessee of any properties. The Bank does not
lease any properties. The properties described below are owned by the Bank.
The Bank serves its customers from its three offices which are located in
Lakeville, Salisbury and Sharon, Connecticut. The Bank's trust department is
located in a separate building adjacent to the main office of the Bank.
The following table includes all property owned by the Bank, but does not
include Other Real Estate Owned.
OFFICES LOCATION STATUS
Main Office 5 Bissell Street Owned
Lakeville, Connecticut
Trust Department 19 Bissell Street Owned
Lakeville, Connecticut
Salisbury Office 18 Main Street Owned
Salisbury, Connecticut
Sharon Office 29 Low Road Owned
Sharon, Connecticut
13
ITEM 3. LEGAL PROCEEDINGS -
Other than routine litigation incidental to its business, there are no material
legal proceedings pending to which the Company, Bank, or their properties are
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the Company"s 1999 fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT"S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information
The Company's common stock is traded on The American Stock Exchange under the
symbol "SAL". The following table presents the high and low closing sales prices
of the Company's common stock. For the first and second quarters of 1998 and up
to August 24, 1998 which is when the Company's stock began trading on the AMEX,
the stock prices were reported by Smith Barney, Inc. and A. G. Edwards & Sons,
Inc. Beginning August 24, 1998, all stock prices for each quarterly period were
reported by the American Stock Exchange. Market information and dividends
reported have been adjusted to reflect the six for one stock exchange described
in Note 1 of the Consolidated Financial Statements.
1999 Quarters 1998 Quarters
-------------------------------------- ----------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
-------------------------------------- ----------------------------------------
Range of Stock prices:
High $20.63 $20.00 $21.38 $22.13 $23.00 $21.75 $20.83 $16.67
Low $19.13 $18.88 $19.75 $19.75 $17.50 $19.00 $20.67 $15.00
(b) Holders
There were approximately 550 holders of stock as of March 3, 2000. This number
includes brokerage firms and other financial institutions which hold stock in
their name but which is actually owned by third parties. The Company is not
provided with the number or identities of these parties.
(c) Dividends
Dividends are currently declared four times a year, and the Company expects to
follow such practices in the future. The Company's ability to pay dividends is
limited by the prudent banking principles applicable to all bank holding
companies and by the provisions of Connecticut Corporate law, which provide that
no distribution may be made by a company if, after giving it effect: (1) the
company would not be able to pay its debts as they become due in the usual
course of business; or (2) the company's total assets would be less than the sum
of its total liabilities plus, unless the certificate of incorporation permits
otherwise, the amount that would be needed, if the company were to be dissolved
at the time of the distribution, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are superior to those
receiving the distribution. The following table presents cash dividends declared
per share for the last two years:
1999 Quarters 1998 Quarters
----------------------------------------- -----------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
----------------------------------------- -----------------------------------------
Cash dividends
declared $ 0.34 $ 0.12 $ 0.12 $ 0.12 $ 0.27 $ 0.11 $ 0.11 $ 0.11
The dividends paid to shareholders of the Company are funded primarily from
dividends received by the Company from the Bank. Reference should be made to
Note 12 of the Consolidated Financial Statements on page F-19 for a description
of restrictions on the ability of the Bank to pay dividends to the Company.
14
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF COMPANY
At or For the Years Ended December 31
1999 1998 1997 1996 1995
----------------------------- -------------------------------------------
Statement of Condition Data: [ dollars in thousands except per share data]
Loans, Net $124,313 $119,143 $116,691 $116,149 $112,083
Allowance For Possible Loan Losses 1,160 1,260 1,226 1,242 1,160
Investments 78,715 81,290 50,116 39,181 37,081
Total Assets 215,385 217,226 183,433 175,363 166,818
Deposits 154,358 153,147 156,169 150,143 148,640
Borrowings 39,712 41,120 5,497 4,527 0
Shareholders' Equity 19,895 21,555 20,483 18,789 17,605
Nonperforming Assets 570 2,044 2,297 3,269 4,467
Statement of Income Data:
Interest and Fees on Loans $9,621 $9,480 $9,459 $9,347 $8,418
Interest and Dividends on Securities
and Other Interest Income 4,903 3,881 3,165 2,727 2,549
Interest Expense 6,683 6,043 5,707 5,518 5,289
----------------------------- -------------- -------------- -------------
Net Interest Income 7,841 7,318 6,917 6,556 5,678
Provision for Possible Loan Losses 120 120 50 275 250
Trust Department Income 1,121 1,031 934 752 693
Other Income 860 735 553 668 450
Net Gain (Loss)on Sales of Securities 0 4 12 192
Other Expenses 5,523 5,347 4,766 4,547 4,213
----------------------------- -------------- -------------- -------------
Pre Tax Income 4,177 3,617 3,592 3,166 2,550
Income Taxes 1,484 1,299 1,402 1,052 990
----------------------------- -------------- -------------- -------------
Net Income $2,693 $2,318 $2,190 $2,114 $1,560
============================= ============== ============== =============
Per Share Data:*
Earnings per common share $1.78 $1.48 $1.41 $1.35 $0.98
Earnings per common share, assuming dilution $1.78 $1.47 $1.40 $1.35 $0.98
Cash Dividends Declared $0.70 $0.60 $0.52 $0.45 $0.33
Book Value (at year end) $13.23 $13.85 $13.06 $12.08 $11.12
Selected Statistical Data:
Return on Average Assets 1.25% 1.22% 1.24% 1.25% 0.97%
Return on Average Shareholders' Equity 12.96% 11.27% 11.10% 11.59% 9.16%
Dividend Payout Ratio 39.16% 40.13% 37.24% 33.27% %33.04%
Average Shareholders' Equity to Average Assets 9.67% 10.79% 11.13% 10.80% 10.54%
Net Interest Spread 3.07% 3.20% 3.33% 3.32% 2.99%
Net Interest Margin 3.93% 4.14% 4.21% 4.14% 3.77%
* Per share data for 1997, 1996 and 1995 has been restated to reflect the
six-for-one stock exchange described in Note 1 of the consolidated financial
statements.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS Salisbury Bancorp, Inc.
OF FINANCIAL CONDITION AND RESULTS OF and Subsidiary
OPERATIONS
OVERVIEW
The following provides Management's comments on the financial condition and
results of operations of Salisbury Bancorp, Inc. (the "Company"), a Connecticut
corporation which is the holding company for Salisbury Bank and Trust Company,
(the "Bank"). The Company's sole business is the Bank, which has three full
service offices including a Trust Department, located in the towns of Lakeville,
Salisbury and Sharon, Connecticut. The Company and the Bank were formed in 1998
and 1848, respectively. This discussion should be read in conjunction with the
Company's consolidated financial statements and the notes to the consolidated
financial statements that are presented as part of this Annual Report for the
three years ended December 31, 1999. All earnings per share and dividends per
share computations have been restated to reflect the six for one stock exchange
when the Company acquired all of the capital stock of the Bank on August 24,
1998.
The reported earnings for the Company were $2,693,000 in 1999, a 16.18% increase
over reported earnings in 1998 of $2,318,000. Earnings in 1997 were $2,190,000.
Earnings per diluted share increased 21.09% to $1.78 per share in 1999. This
compares to earnings per diluted share of $1.47 and $1.40 reported for 1998 and
1997 respectively.
This growth in net income and earnings per share during 1999 primarily reflects
an increase in average earning assets and noninterest income, the continuing
efforts of management to control operating expenses, and the reduced number of
shares outstanding as a result of stock repurchases. Management is pleased with
the continued growth of earnings and the improvements in the quality and
sustainability of the Company's earnings.
The quality of the Company's base of earning assets continued to improve during
1999. There were fewer nonperforming assets at the end of 1999 than a year ago.
Such assets, which consist of nonaccrual loans, loans restructured and other
real estate owned, totaled $570,000 or .26% of the total assets at year end
1999. This reflects a decrease of 72.11% when compared to year end 1998
nonperforming assets of $2,044,000. At December 31, 1999, the allowance for
possible loan losses was $1,160,000 and represented 234.34% of nonperforming
loans or .93% of total loans outstanding. This compares to a year end 1998
allowance of $1,260,000 which represented 67.60% of nonperforming loans or 1.05%
of total loans outstanding.
The Company's risk-based capital ratios at December 31, 1999, which includes the
risk-weighted assets and capital of Salisbury Bank and Trust Company, were
20.56% for Tier 1 capital and 21.71% for total capital. The leverage ratio was
9.95%. During 1999, the Company repurchased 55,015 shares of common stock.
As a result of the Company's financial performance, the Board of Directors
increased the dividends declared on the Company's common stock by 16.67% to $.70
per share in 1999. This compares to a $.60 per share dividend in 1998. A $.52
dividend per share was paid in 1997.
RESULTS OF OPERATIONS
COMPARISON BETWEEN 1999 AND 1998
NET INTEREST INCOME
The Company earns income from two basic sources. The primary source is through
the management of its financial assets and liabilities and the second is by
charging fees for services provided. The first involves functioning as a
financial intermediary. The Company accepts funds from depositors or borrows
funds and then either lends the funds to borrowers or invests those funds in
various types of securities. The second is fee income which is discussed in the
noninterest income section of this analysis.
16
Net interest income is the difference between the interest and fees earned on
loans and securities (the Company's earning assets) and the interest expense
paid on deposits and borrowed funds, primarily in the form of advances from the
Federal Home Loan Bank. The amount by which interest income will exceed interest
expense depends on two factors: (1) the volume or balance of earning assets
compared to the volume or balance of interest-bearing deposits and borrowed
funds, and (2) the interest rate earned on those interest earning assets
compared with the interest rate paid on those interest bearing deposits and
borrowed funds. For this discussion, net interest income is presented on a fully
taxable-equivalent ("FTE") basis. FTE interest income restates reported interest
income on tax exempt loans and securities as if such interest were taxed at the
applicable State and Federal income tax rates for all periods presented.
(dollars in thousands) December 31
1999 1998 1997
---------------------------------------------
Interest Income
(financial statements) $14,524 $13,361 $12,624
Tax Equivalent Adjustment 295 206 175
Interest Expense ( 6,683) ( 6,043) ( 5,707)
-------- -------- ---------
Net Interest Income-FTE $ 8,136 $ 7,524 $ 7,092
======= ======= =======
The Company's 1999 interest income-FTE of $14,819,000 was $1,252,000 or 9.23%
greater than 1998. This is primarily the result of an increase in average
earning assets of $25,069,000 or 13.80% to $206,794,000 during 1999. Interest
expense increased $640,000 or 10.59% to $6,683,000 in 1999. This is the result
of an increase in average Federal Home Loan Bank advances of $20,327,000 or
133.14% and an increase in average interest bearing deposits of .95% to
$127,430,000. Overall, net interest income-FTE increased 8.13% to $8,136,000 in
1999 compared to $7,524,000 in 1998.
Net interest margin is net interest income expressed as a percentage of average
earning assets. It is used to measure the difference between the average rate of
interest earned on assets and the average rate of interest that must be paid to
support those assets. To maintain its net interest margin, the Company must
manage the relationship between interest earned and paid. The Company's 1999 net
interest margin (FTE) of 3.93% was .21% lower than 1998's net interest margin of
4.14%. A decline in interest rates in late 1998 carried over into the year 1999
resulting in pressures on margins that actually reduced the net interest margin
to 3.83% during the first quarter of the year. A rising rate environment near
year end resulted in the net interest margin climbing to its year end level of
3.93%.
The following table reflects average balances, interest earned or paid and rates
for the three years ended December 31, 1999, 1998 and 1997. The average loan
balances include both non-accrual and restructured loans. Interest earned on
loans also includes fees on loans such as late charges collected which are not
deemed to be material. Interest earned on tax exempt securities in the table is
presented on a fully taxable-equivalent basis ("FTE"). A federal tax rate of 34%
was used in performing these calculations. Actual tax exempt income earned in
1999 was $572,000 with a yield of 4.93%. Actual tax exempt income in 1998 was
$400,000 with a yield of 5.05% and 1997 actual tax exempt income was $289,000
with a yield of 5.25%.
17
Average Balances, Interest Earned or Paid and Rates
Year Ended December 31
[dollars in thousands] 1999 1998 1997
---------------------------------------------------------------------------------------------------
INTEREST INTEREST INTEREST
AVERAGE EARNED/ YIELD AVERAGE EARNED/ YIELD AVERAGE EARNED/ YIELD
BALANCE PAID * RATE BALANCE PAID * RATE * BALANCE PAID * RATE *
---------------------------------------------------------------------------------------------------
ASSETS
Interest Earning Assets:
Loans $123,174 $ 9,621 7.81% $118,417 $ 9,480 8.01% $117,991 $ 9,459 8.02%
Taxable Securities 65,403 4,016 6.14% 46,903 3,032 6.46% 37,959 2,469 6.50%
Tax-Exempt Securities 11,614 867 7.47% 7,917 606 7.65% 5,505 464 8.43%
Federal Funds 6,156 295 4.79% 8,080 425 5.26% 6,601 384 5.82%
Other Interest Income 447 20 4.47% 408 24 5.88% 414 23 5.56%
------ ------ ----- ------- ------ ----- -------- -------- ------
Total interest earning 206,794 14,819 7.17% 181,725 13,567 7.47% 168,470 12,799 7.60%
-------- ------ ------
assets
Allowance for loan (1,190) (1,254) (1,218)
losses
Cash & due from
Banks 5,101 4,572 4,565
Premise, Equipment 2,498 2,901 2,999
Net unrealized
gain/loss on AFS Securities (754) 538 170
Other Assets 2,378 2,135 2,274
-------- -------- --------
Total Average Assets $214,827 $190,617 $177,260
======== ======== ========
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Interest Bearing
Liabilities:
NOW/Money Market
deposits $ 53,182 $ 1,524 2.87% $ 50,373 $ 1,531 3.04% $ 51,050 $ 1,602 3.14%
Savings deposits 15,315 372 2.43% 14,547 355 2.44% 13,869 357 2.57%
Time deposits 58,933 2,939 4.99% 61,316 3,238 5.28% 63,431 3,406 5.37%
Borrowed funds 35,594 1,848 5.19% 15,267 919 6.02% 5,191 342 6.59%
-------- -------- -----
Total interest bearing
liabilities 163,024 6,683 4.10% 141,503 6,043 4.27% 133,541 5,707 4.27%
-------- ------- -------
Demand Deposits 30,024 27,234 23,118
Other Liabilities 999 1,308 880
Shareholders' Equity 20,780 20,572 19,721
-------- -------- ---------
Total Liabilities and
Equity $214,827 $190,617 $ 177,260
========= ========= ===========
Net Interest Income $ 8,136 $ 7,524 $ 7,092
========= ========= ==========
Net Interest Spread 3.07% 3.20% 3.33%
Net Interest Margin 3.93% 4.14% 4.21%
* Annualized
18
Volume and Rate Variance Analysis of Net Interest Income
(Taxable equivalent basis)
(dollars in thousands) 1999 over 1998 1998 over 1997
------------------------------------ ---------------------------------
Volume Rate Total Volume Rate Total
------------------------------------ ---------------------------------
Increase (decrease) in:
Interest income on:
Loans $ 381 $ (240) $ 141 $ 34 $ (13) $ 21
Taxable investment securities 1,195 (211) 984 581 (18) 563
Tax-exempt investment securities 282 (21) 261 203 (61) 142
Other interest income (100) (34) (134) 85 (43) 42
------- ------- ------- ------- ------- -------
Total interest income $ 1,758 $ (506) $ 1,252 $ 903 $ (135) $ 768
------- ------- ------- ------- ------- -------
Interest expense on:
NOW/Money Market deposits $ 85 $ (92) $ (7) $ (21) $ (50) $ (71)
Savings deposits 19 (2) 17 17 (19) (2)
Time deposits (126) (173) (299) (113) (55) (168)
Borrowed funds 1,224 (295) 929 664 (87) 577
------- ------- ------- ------- ------- -------
Total interest expense $ 1,202 $ (562) $ 640 $ 547 $ (211) $ 336
------- ------- ------- ------- ------- -------
Net interest margin $ 556 $ 56 $ 612 $ 356 $ 76 $ 432
======= ======= ======= ======= ======= =======
NONINTEREST INCOME
Fees earned by the Trust Department remain the largest component of noninterest
income and amounted to $1,121,000 in 1999. This increase of $90,000 or 8.73% is
the result of continuing growth in the department. Other noninterest income
increased 17.05% to $860,000 in 1999. Growth in demand deposit and NOW accounts
generated an increase in transaction volumes resulting in increased fees. The
Company's VISA credit card program continues to grow, also contributing to the
increase in transaction fees. INVEST Financial Services, a new financial
planning service introduced during the latter part of 1998, has completed it's
first full year of existence and has contributed to noninterest income. The
Company continues to work on increasing noninterest income due to its importance
as a potential contributor to profitability.
NONINTEREST EXPENSE
Noninterest expense totaled $5,523,000 in 1999. This is an increase of $177,000
when compared to total noninterest expense of $5,346,000 in 1998. These expenses
are often calculated as a proportion of total assets as a means of comparing
this level with other financial institutions. As a percentage of average earning
assets, these expenses have remained generally consistent at 2.67% in 1999,
2.94% in 1998 and 2.83% in 1997. Salaries and employee benefits increased
$246,000 or 9.35%. This is primarily the result of salary increases and
increased costs of employee benefits. Occupancy and equipment expense increased
$25,000 when comparing 1999 to 1998. Data processing costs increased $70,000 or
27.89% to $321,000 in 1999. The Company remains committed to upgrading equipment
to handle increased transaction volumes and to maintain technological
competitiveness. This commitment to utilizing technology to facilitate the
personalized delivery of financial products and services is considered to be a
key component to the Company's continued success as a leading community based
financial institution. Increases and decreases in other operating expenses are
the result of normal operating activities and management's continuing efforts to
control costs.
INCOME TAXES
In 1999, the Company's tax expense was $1,484,000, an effective tax rate of
35.53%. This compares to income tax expenses of $1,299,000 in 1998, an effective
tax rate of 35.92%. This increase in tax expense reflects an increase in taxable
income.
19
COMPARISON BETWEEN 1998 AND 1997
OVERVIEW
Salisbury Bancorp, Inc.'s earned net income for 1998 was $2,318,000 or $1.47
diluted per share earnings. This represented a 5.84% increase over the
$2,190,000 earned in 1997. On an earnings per share basis, 1998 increased 5.00%
over the $1.40 diluted per share earnings for 1997. Growth in net income and
earnings per share during 1998 primarily reflected both an increase in earning
assets and the continuing efforts of management to control operating expenses.
The Company's risk-based capital ratios, which included the risk-weighted assets
and capital of Salisbury Bank and Trust Company, were 20.62% for Tier 1 capital
and 21.90% for total capital at December 31, 1998. These ratios substantially
exceeded the regulatory minimums for bank holding companies of 4% for Tier 1
capital and 8% for total capital.
Nonperforming assets, which included nonaccrual loans, loans restructured and
other real estate owned, were $2,044,000 or 0.94% of total assets outstanding at
year end 1998. This reflected a decrease of 11.01% when compared to year end
1997 nonperforming assets of $2,297,000 which were 1.25% of total assets. At
December 31, 1998, the allowance for loan losses was $1,260,000 or 1.05% of
total loans outstanding and 67.60% of nonperforming loans, which totaled
$1,864,000.
As a result of the Company's financial performance, the Board of Directors
increased the dividends declared on the Company's common stock by 15.39% during
1998 from $.52 per share in 1997 to $.60 per share in 1998. Despite the payment
of increased dividends, per share book value increased to $13.85 at December 31,
1998 compared to $13.06 at December 31, 1997.
NET INTEREST INCOME
In 1998, net interest income-FTE increased $432,000 or 6.09% over 1997. Net
interest margins decreased from 4.21% in 1997 to 4.14% in 1998. This was
primarily the result of pressures on margins created by competition for
business, coupled with a year in which there was a decline in interest rates. As
a result, however, total average earning assets increased $13,255,000 to
$181,725,000 or 7.87% during 1998. Average deposits increased slightly during
1998; however, lower rate trends resulted in a decrease in interest expense on
deposits of $241,000 or 4.50%. This overall increase in interest expense was the
result of the additional borrowings from the Federal Home Loan Bank.
NONINTEREST INCOME
The Company's income from noninterest revenue activities increased 18.44% in
1998 and represented 11.67% of total revenues compared to 10.56% in 1997. The
Trust Department continued to grow and as a result, trust income for 1998
increased 10.39% to $1,031,000 compared to income in 1997 of $934,000. Other
noninterest income increased 32.91% to $735,000 in 1998. This was primarily the
result of increased fees for insufficient funds and from an increase of 47.68%
in interchange fees from an increase in MasterMoney debit card transactions and
VISA credit card transactions. This compared to other noninterest income of
$553,000 for 1997.
NONINTEREST EXPENSE
Noninterest expense totaled $5,347,000 in 1998. Salaries and employee benefits
increased $233,000 or 9.71%. This was primarily the result of salary increases
and increased costs of employee benefits. Occupancy and equipment expense
increased $96,000 when comparing 1998 to 1997. During 1998, the Company incurred
some one time expenses that resulted in an increase in noninterest expenses for
the year. Several years earlier the Company purchased property in New York state
on which it intended to build a branch facility. However, impediments to
interstate de novo branching delayed the branch initiative and the property was
reclassified on the Company's books as other real estate owned ("OREO") property
and its carrying value written down. This resulted in an expense of $65,000. The
Company also recorded a profit from operation on other real estate owned of
$52,000 for 1998.
20
However, there was an OREO property on the Company's books
that was disposed of in 1998 at a cost of $170,000 and is reflected in the total
other expenses of $1,374,000.
INCOME TAXES
In 1998, the Company's tax expense was $1,299,000, an effective tax rate of
35.92%. This compares to income tax expense of $1,402,000 in 1997, an effective
tax rate of 39.03%. The decrease in the effective tax rate was primarily the
result of an increase in tax exempt income.
FINANCIAL CONDITION
COMPARISON OF DECEMBER 31, 1999 AND 1998
Total assets at December 31, 1999 were $215,385,000 compared to $217,226,000 at
December 31, 1998, a decrease of $1,841,000 or .85%. The Company classifies
nearly the entire investment securities portfolio as available-for-sale, the
value of which is adjusted quarterly to market value. Changes in the economic
climate during the year generated movement in interest rates. This movement
resulted in a decrease in the carrying value of the Company's securities
portfolio. The Company also used cash to repurchase 55,015 shares during 1999.
LENDING
Loans receivable, net of allowance for loan losses increased $5,170,000 to
$124,313,000 at December 31, 1999 or 4.34% compared to $119,143,000 at December
31, 1998. The Company's credit function is designed to insure adherence to a
high level of credit standards despite the aggressive pressures of competition
for loans in the Company's market area. Residential mortgages showed the largest
dollar growth during the year increasing 7.74% or $6,229,000 to $86,680,000 at
December 31, 1999 compared to $80,451,000 at December 31, 1998. The Company
offers a wide variety of loan types and terms to customers along with very
competitive pricing and we continue to develop new personalized financial
products and services to meet the needs of our customers.
ALLOWANCE FOR LOAN LOSSES
Credit risk is inherent in the business of extending loans. The Company
maintains an allowance or reserve for credit losses through charges to earnings.
The loan loss provisions for 1999 and 1998 were $120,000 each year. Specifically
identifiable and quantifiable losses are immediately charged off against the
allowance.
The Company formally determines the adequacy of the allowance on a monthly
basis. This determination is based on assessment of credit quality or "risk
rating" of loans by senior management which is submitted to the Board of
Directors for approval. Loans are initially risk rated when originated. If there
is a deterioration in the credit, the risk rating is adjusted accordingly.
The allowance also includes a component resulting from the application of the
measurement criteria of Statements of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan ("SFAS 114").
These impaired loans receive individual evaluation of the allowance necessary on
a monthly basis. Impaired loans are defined in the Bank's Loan Policy as
residential real estate mortgages with balances of $300,000 or more and
commercial loans over $100,000 when it is probable that the bank will not be
able to collect all principal and interest due according to the terms of the
note.
These commercial loans and residential mortgage loans will then be considered
impaired under any one of the following circumstances:
1. Non-accrual status;
2. Loans over 90 days delinquent;
3. Troubled debt restructures consummated after December 31, 1994; or
4. Loans classified as "doubtful", meaning that they have weaknesses
which make collection or liquidation in full, on the basis of
currently existing facts, conditions, and values, highly
questionable and improbable.
21
The individual allowance for each impaired loan is based upon the present value
of expected future cash flows discounted at the loan's effective interest rate
or the fair value of the collateral if the loan is collateral dependent.
The loss factor applied as a general allowance is determined by a periodic
analysis of the Allowance for Loan Losses. This analysis considers historical
loan losses and loan delinquency figures for the last three years. It also looks
at delinquency trends over the most recent quarter.
The credit card delinquency and loss history is evaluated separately and given a
special loan loss factor because management recognizes the higher risk involved
in such loans. Concentrations of credit and local economic factors are also
evaluated on a periodic basis. Average net losses for the last three years by
loan type are examined as well as trends by type for the last three years. The
Bank's loan mix over that same period of time is analyzed.
A loan loss allocation is made for each type of loan and multiplied by the loan
mix percentage for each loan type to produce a weighted average factor.
At December 31, 1999, the allowance for loan losses totaled $1,160,000
representing 234.34% of nonperforming loans and .93% of total loans compared to
$1,260,000 representing 67.60% of nonperforming loans and 1.05% of total loans
at December 31, 1998. Management believes that the allowance for loan losses is
reasonable and adequate to cover any losses reasonably expected in the existing
loan portfolio. While management estimates loan losses using the best available
information, no assurances can be given that future additions to the allowance
will not be necessary based on changes in economic and real estate market
conditions, further information obtained regarding problem loans, identification
of additional problem loans and other factors, both within and outside of
management's control. Additionally, with expectations of the Company to grow its
existing loan portfolio, future additions to the allowance may be necessary to
maintain adequate coverage ratios.
SECURITIES PORTFOLIO
As of December 31, 1999, the securities portfolio, including Federal Home Loan
Bank of Boston stock, totaled $78,715,000. This represents a decrease of
$2,575,000 or 3.17% when compared to $81,290,000 at year end 1998. Federal funds
sold decreased $6,200,000 at year end 1999 compared to year end 1998. These
reductions were used primarily to fund loan growth and repay borrowings. The
Company manages the securities portfolio in accordance with the investment
policy adopted by the Board of Directors. The primary objectives are to earn
interest and dividend income, provide liquidity to meet cash flow needs and to
manage interest rate risk and asset-quality diversification to the Company's
assets. The securities portfolio also acts as collateral for the deposits of
public agencies. The primary component of the total portfolio is U.S. Government
sponsored agencies which accounted for 44.96% of the portfolio at December 31,
1999. The remaining portion of the portfolio primarily consists of U. S.
Treasury, State and Municipal obligations and mortgage-backed securities. At
December 31, 1999, securities totaling $76,124,000 were classified as
available-for-sale and securities totaling $489,000 were classified as
held-to-maturity. The Company continues to use arbitrage strategy by borrowing
funds and then investing them at a rate of return higher than the borrowing cost
in order to generate additional interest income.
The accumulated other comprehensive income on the available-for-sale portion of
the portfolio, net of tax effect decreased $2,192,000 to $(1,835,000) at year
end 1999 compared to $357,000 at year end 1998. This is primarily attributable
to an upward movement in interest rates and activity in the stock market during
the year.
DEPOSITS
The Company offers a variety of deposit accounts with a range of interest rates
and terms. Deposits at year end 1999 totaled $154,358,000 compared to
$153,147,000 at year end 1998. The flow of deposits is influenced significantly
by general economic conditions, changes in money market rates, prevailing
interest rates and the aggressive competition from nonbanking entities. During
the year, there was an increase in demand deposits, savings and money market
accounts which are lower cost core deposits. This resulted in a decrease in the
cost of the deposit base for 1999. This change in deposit mix that began in 1998
and continued into 1999 improves net interest margin to the extent that the
Company can continue growth in these core deposits.
22
The average daily amount of deposits by category and the average rates paid on
such deposits are summarized in the following table:
(dollars in thousands)
Year Ended December 31
1999 1998 1997
--------------------------------------------------------------------------
Average Average Average
Balance Rate Balance Rate Balance Rate
--------------------------------------------------------------------------
Demand $ 30,024 $ 27,234 $ 23,118
NOW 16,400 2.03% 15,592 1.24% 15,690 1.47%
Money Market 36,782 3.67% 34,781 3.84% 35,360 3.88%
Savings 15,315 2.43% 14,547 2.44% 13,869 2.57%
Time 58,933 4.99% 61,316 5.28% 63,431 5.37%
---------- ---------- ----------
$157,454 3.07% $153,470 3.34% $151,468 3.54%
======== ======== ========
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1999 are summarized as follows:
(dollars in thousands)
Year Ended December 31
1999 1998 1997
---------------------------------------
Three months or less $ 2,296 $ 6,920 $ 5,801
Over three months through six months 4,120 2,069 4,415
Over six months through one year 5,194 3,887 3,017
Over one year 3,294 2,508 1,091
--------- --------- ---------
Total $14,904 $15,384 $14,324
========= ========= =========
BORROWINGS
As part of its operating strategy, the Company utilizes advances from the
Federal Home Loan Bank to supplement deposit growth and fund its asset growth.
These advances are made pursuant to various credit programs, each of which has
its own interest rate and range of maturities. At December 31, 1999, the Company
had $39,712,000 in outstanding advances from the Federal Home Loan Bank compared
to $41,120,000 at December 31, 1998. The decrease represents repayment of the
borrowings. Management expects that it will continue this strategy.
QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET/LIABILITY MANAGEMENT AND MARKET RISK
There are several factors that impact the Company's market risk. They include
economic conditions, regulatory considerations and trends in the banking and
financial services industries.
From a national perspective, the most significant economic factors impacting the
Company have been the steady growth in the economy and the actions of the
Federal Reserve Board to manage the pace of that growth with movements in
interest rates. The economy in the Company's market area is also impacted as
market rates for loans, investments and deposits respond to these Federal
Reserve actions.
Changes in regulation can impact the Company. The Federal Reserve requires that
banks maintain reserves equal to a percentage of their transaction accounts. An
increase or decrease in this percentage impacts funds available to lend which
could either stimulate or slow economic activities.
23
Competition is aggressive in the Company's market area and comes from both
banking and non-banking entities. This competition can have a significant impact
on profitability.
The Company views the process of addressing the potential impacts of these
external factors as part of its management of risk. Due to the nature of its
business, the Company is subject to credit risk and interest rate risk that is
related to financial products. Credit risk relates to the possibility that a
loan may not be repaid to the Company.
INTEREST RATE RISK
Interest rate risk is the most significant market risk affecting the Company.
Interest rate risk is defined as an exposure to a movement in interest rates
that could have an adverse effect on the Company's net interest income. Net
interest income is sensitive to interest rate risk to the degree that interest
bearing liabilities mature or reprice on a different basis than earning assets.
In an attempt to manage its exposure to changes in interest rates, the Bank's
assets and liabilities are managed in accordance with policies established and
reviewed by the Bank's Board of Directors. The Bank's Asset/Liability Management
Committee monitors asset and deposit levels, developments and trends in interest
rates, liquidity and capital. One of the primary financial objectives is to
manage interest rate risk and control the sensitivity of earnings to changes in
interest rates in order to prudently improve net interest income and manage the
maturities and interest rate sensitivities of assets and liabilities.
To quantify the extent of these risks both in its current position and in
actions it might take in the future, interest rate risk is monitored using gap
analysis which identifies the differences between assets and liabilities which
mature or reprice during specific time frames and model simulation which is used
to "rate shock" the Company's asset and liability balances to measure how much
of the Company's net interest income is "at risk" from sudden rate changes.
At December 31, 1999, the Company was slightly liability sensitive. Less than 1%
of short-term earnings are at risk in either a rising or falling rate
environment. This level of interest rate risk is well within the limits approved
by the Board of Directors.
LIQUIDITY
Liquidity is the ability to raise funds on a timely basis at an acceptable cost
in order to meet cash needs. Adequate liquidity is necessary to handle
fluctuation in deposit levels, to provide for customers' credit needs, and to
take advantage of investment opportunities as they are presented. The Company
manages liquidity primarily with readily marketable investment securities,
deposits and loan repayments. The Company's subsidiary, Salisbury Bank and Trust
Company, is a member of the Federal Home Loan Bank of Boston. This enhances the
liquidity position by providing a source of available borrowings.
At December 31, 1999, the Company had approximately $22,324,000 in loan
commitments outstanding. Management believes that the level of liquidity is
ample to meet the Company's needs for both the present and foreseeable future.
CAPITAL
Under current regulatory definitions, the Company is "well-capitalized", the
highest rating of the five categories defined under the Federal Deposit
Insurance Corporation Improvement Act ("FDICIA"). As a result, the Bank pays the
lowest deposit premium possible. The primary measure of capital adequacy for
regulatory purposes is based on the ratio of risk-based capital to risk weighted
assets. This method of measuring capital adequacy helps to establish capital
requirements that are more sensitive to the differences in risk associated with
various assets. It takes into account off-balance sheet exposure in assessing
capital adequacy and it minimizes disincentives to holding liquid, low-risk
assets. At year end 1999, the Company had a risk-based capital ratio of 21.71%
compared to 21.90% a year ago. This slight decrease is primarily the result of
activity in the Company's stock buy back program during the year. During 1999,
the Company repurchased 55,015 shares or 3.66% of its outstanding common stock.
24
Capital management plays a significant role in the earnings per share growth of
the Company. Net income has provided $7,201,000 in capital in the last three
years, of this amount $2,800,000 or 38.89% was distributed in dividends.
Maintaining strong capital is essential to bank safety and soundness which
influences customer confidence, potential investors, regulators and
shareholders. However, the effective management of capital requires generating
attractive returns on equity to build value for shareholders while maintaining
appropriate levels of capital to fund growth, meeting regulatory requirements
and being consistent with prudent industry practices.
IMPACT OF INFLATION AND CHANGING PRICES
The Company's consolidated financial statements are prepared in conformity with
generally accepted accounting principles which require the measurement of
financial condition and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money, over time, due to
inflation. Unlike most industrial companies, virtually all of the assets and
liabilities of the Company are monetary and as a result, interest rates have a
greater impact on the Company's performance than do the effects of general
levels of inflation; although they do not necessarily move in the same direction
or with the same magnitude as the prices of goods and services. Inflation has
been minimal for the last several years and has had little impact on the
financial condition and results of operations of the Company during the periods
discussed in this report; however, it could impact earnings in future periods.
YEAR 2000
Disclosure relating to Ongoing "Year 2000 Issues"
"Year 2000 issues" refer to a wide variety of potential computer issues that may
arise from the ability of computer programs to properly process date-sensitive
information relating to the Year 2000, critical dates throughout the year and
thereafter.
The State of the Company's Readiness
The Year 2000 created risk for the Company from unforeseen problems in computer
systems and from Year 2000 issues with the Company"s vendors, service providers
and customers. A company-wide Year 2000 ("Y2K") program which included a formal
Y2K project plan continues to be utilized in addressing Y2K issues. Ensuring the
continuing integrity of all technical systems and business processes is a top
priority for the Company. Upgrades to all of the Company's business-critical
systems have been completed and all business-critical applications have tested
satisfactorily.
The Company completed the remediation of its network hardware, personal
computers and operating systems. The Company's mission critical service
providers and software vendors provided remediated products, allowing the
Company to complete the validation process.
The Company utilized several third-party service providers for its core
applications. The service providers have met their established goals for Year
2000 qualifications of their systems and related products utilized by the
Company.
The Risks of the Company's Year 2000 Issues
The Company recognized that a failure to resolve a material Year 2000 issue
could have resulted in the interruption in, or a failure of, certain normal
business activities or operations such as servicing depositors, processing
transactions or originating and servicing loans. The Company determined that a
company-wide business risk-assessment approach is most appropriate for
addressing and remediating Year 2000 problems. This included an assessment of
the information technology resources of each of the functional areas of the
Company, as well as separate assessments of information technology, vendors and
suppliers and non-information technology and facilities risks.
25
Management recognized and prepared for the liquidity risk stemming from the
potential withdrawal of significant deposits or other sources of funds as the
Year 2000 millennium date change approached. The Company did not experience any
changes in customer behavior and did not have to implement any of its
Contingency Plans.
The Costs to Address the Company's Year 2000 Issues
Costs to modify computer systems did not have a material impact on the Company's
financial results or condition. The Company's budget for Y2K related expenses in
1999 was $50,000, of which the Bank expended $47,391.
Although the Company does not specifically monitor the cost of internal
resources diverted to the Year 2000 project, these issues have consumed a
substantial amount of staff and management resources.
The Company's Contingency Plans
The Company has a business resumption plan that helps supplement the Company's
comprehensive Disaster Recovery Policy and Program as a part of the Company's
contingency planning. To further the Company's Disaster Recovery initiative, the
Company has an auxiliary power generator in one of its branch locations.
Management could use this location as a provisional operations center and could
re-deploy staff resources, if necessary to help assure manual completion of
critical operational activities.
The Company did not have to implement any portions of its business resumption
plan during the millennium date rollover. No disruptions were experienced by the
Company and the transition to the new year was accomplished without incident.
The Bank's Business Resumption Contingency Plan addresses the possibility that
one or more of the Bank"s mission critical systems or infrastructure components
might fail to operate as required on one or more of the "critical dates"
identified by the Company in its" Year 2000 Test Plan. While most "critical
dates" identified by the Company have already occurred without incident, the
Plan is fully capable of responding to other critical date contingencies.
FORWARD LOOKING STATEMENTS
This Form 10-K and future filings made by the Company with the Securities and
Exchange Commission, as well as other filings, reports and press releases made
or issued by the Company and the Bank, and oral statements made by executive
officers of the Company and Bank, may include forward-looking statements
relating to such matters as (a) assumptions concerning future economic and
business conditions and their effect on the economy in general and on the
markets in which the Company and the Bank do business, and (b) expectations for
revenues and earnings for the Company and Bank through growth resulting from
attraction of new deposit and loan customers and the introduction of new
products and services. Such forward-looking statements are based on assumptions
rather than historical or current facts and, therefore, are inherently uncertain
and subject to risk. For those statements, the Company claims the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
The Company notes that a variety of factors could cause the actual results or
experience to differ materially from the anticipated results or other
expectations described or implied by such forward-looking statements. The risks
and uncertainties that may affect the operations, performance, development and
results of the Company's and Bank's business include the following: (a) the risk
of adverse changes in business conditions in the banking industry generally and
in the specific markets in which the Bank operates; (b) changes in the
legislative and regulatory environment that negatively impact the Company and
Bank through increased operating expenses; (c) increased competition from other
financial and non-financial institutions; (d) the impact of technological
advances; and (e) other risks detailed from time to time in the Company's
filings with the Securities and Exchange Commission. The Company and Bank do not
undertake any obligation to update or revise any forward-looking statements
subsequent to the date on which they are made.
26
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
Management is responsible for the integrity and objectivity of the financial
statements and other information appearing in this Annual Report. The financial
statements were prepared in accordance with generally accepted accounting
principles applying estimates and Management's best judgment as required. To
fulfill their responsibilities, Management establishes and maintains accounting
systems and practices adequately supported by internal accounting controls.
These controls include the selection and training of management and supervisory
personnel; an organization structure providing for delegation of authority and
establishment or responsibilities; communication of requirements for compliance
with approved accounting, control and business practices throughout the
organization; business planning and review; and a program of internal audit.
Management believes the internal accounting controls in use provide reasonable
assurance that assets are safeguarded, that transactions are executed in
accordance with Management's authorization and that the financial records are
reliable for the purpose of preparing financial statements.
27
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The main components of market risk for the Company are equity price risk, credit
risk, interest rate risk and liquidity risk.
With regard to equity price risk the Company"s stock is traded on the American
Stock Exchange and as a result the value of its common stock may fluctuate or
respond to price movements relating to the banking industry or other indicia of
investment. A discussion of credit risk, interest rate risk and liquidity risk
can be found in Part II, Item 7 "Management"s Discussion and Analysis of
Financial Condition and Results of Operations" in this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page
Quarterly Summarized Financial Data (unaudited)............................ 29
Index to Consolidated Financial Statements
Report of Independent Auditors" January 24, 2000...........................F-1
Consolidated Balance Sheets at December 31, 1999 and 1998..................F-2
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997..........................................F-3
Consolidated Statements of Changes in Stockholders" Equity
for the Years Ended December 31, 1999, 1998 and 1997......................F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997..........................................F-6
Notes to Consolidated Financial Statements for the
Years Ended December 31, 1999, 1998 and 1997..............................F-8
Salisbury Bancorp, Inc. (parent company only)
Balance Sheet at December 31, 1999.......................................F-23
Statement of Income for the Year Ended December 31, 1999 and
for the periodAugust 24, 1998 to December 31, 1998.......................F-24
Statement of Cash Flows for the Year Ended December 31, 1999
and for the period August 24, 1998 to December 31, 1998..................F-25
28
QUARTERLY SUMMARIZED FINANCIAL DATA (unaudited)
[dollars in thousands except per share data]
Quarters Ended
1999 1998
Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
Statement of Condition Data:
Loans, Net $124,313 $123,651 $123,059 $120,514 $119,143 $117,562 $117,413 $116,402
Allowance For Possible Loan Losses 1,160 1,109 1,205 1,288 1,260 1,259 1,259 1,251
Investments 78,715 82,281 70,698 69,164 81,290 61,450 52,273 51,343
Total Assets 215,385 218,458 215,241 205,091 217,226 196,466 181,423 181,071
Deposits 154,358 155,130 163,809 152,453 153,147 149,979 148,301 149,506
Borrowings 39,712 42,038 30,358 30,741 41,120 23,492 10,857 9,236
Shareholders' Equity 19,895 20,207 20,244 20,693 21,555 21,581 21,181 20,816
Nonperforming Assets 570 1,270 1,839 1,915 2,044 2,148 2,064 2,377
Statement of Income Data:
Interest and Fees on Loans 2,457 2,433 2,394 2,337 2,368 2,367 2,374 2,371
Interest and Dividends on Securities
and Other Interest Income 1,306 1,293 1,154 1,150 1,102 1,001 883 895
Interest Expense 1,733 1,700 1,618 1,632 1,754 1,474 1,403 1,412
----------------------------------------------------------------------------------------------
Net Interest Income 2,030 2,026 1,930 1,855 1,716 1,894 1,854 1,854
Provision for Possible Loan Losses 30 30 30 30 30 30 30 30
Trust Department Income 318 242 261 300 268 246 269 248
Other Income 253 217 213 177 239 164 177 155
Net Loss on Sales of Securities 2 0 0 0 0 0 0 0
Other Expenses 1,591 1,310 1,308 1,315 1,493 1,298 1,293 1,263
----------------------------------------------------------------------------------------------
Pre Tax Income 978 1,145 1,066 987 700 976 977 964
Income Taxes 223 466 444 350 160 375 420 344
----------------------------------------------------------------------------------------------
Net Income $755 $679 $622 $637 $540 $601 $557 $620
==============================================================================================
Per Share Data:
Earnings diluted $0.50 $0.45 $0.41 $0.42 $0.34 $0.39 $0.35 $0.39
Cash Dividends Declared $0.34 $0.12 $0.12 $0.12 $0.27 $0.11 $0.11 $0.11
Dividend Payout Ratio 68.00% 26.67% 29.27% 28.57% 79.41% 28.21% 31.43% 28.21%
Book Value $13.23 $13.42 $13.41 $13.71 $13.85 $13.88 $13.52 $13.43
Market Price:
High $20.63 $20.00 $21.38 $22.13 $22.75 $21.75 $20.83 $20.83
Low $19.13 $18.88 $19.75 $19.75 $17.50 $18.89 $14.17 $14.17
Selected Statistical Data:
Return on Average Assets 1.38% 1.24% 1.18% 1.22% 1.07% 1.25% 1.22% 1.34%
Return on Average Shareholders' Equity 14.46% 13.32% 11.98% 12.08% 9.64% 12.26% 11.04% 12.14%
Average Shareholders' Equity
to Average Assets 9.39% 9.39% 9.81% 10.09% 10.61% 10.47% 11.03% 11.05%
Net Interest Margin 4.04% 3.98% 3.87% 3.83% 3.75% 4.04% 4.33% 4.44%
29
[LETTERHEAD SHATSWELL, MACLEOD & COMPANY, P.C]
To the Board of Directors
Salisbury Bancorp, Inc.
Lakeville, Connecticut
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Salisbury
Bancorp, Inc. and Subsidiary as of December 31, 1999 and 1998 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Salisbury Bancorp, Inc. and Subsidiary as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999, in conformity with
generally accepted accounting principles.
/S/ SHATSWELL, MacLEOD & COMPANY, P.C.
--------------------------------------
SHATSWELL, MacLEOD & COMPANY, P.C.
West Peabody, Massachusetts
January 24, 2000
SALISBURY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS 1999 1998
- ------ ------------------------------------
Cash and due from banks $ 6,477,502 $ 5,525,258
Interest bearing demand deposits with other banks 267,696 409,344
Federal funds sold 6,200,000
Money market mutual funds 970,526
----------------
Cash and cash equivalents 7,715,724 12,134,602
Investments in available-for-sale securities (at fair value) 75,153,227 78,655,408
Investments in held-to-maturity securities (fair values of $478,185 as of
December 31, 1999 and $573,075 as of December 31, 1998) 489,340 579,078
Federal Home Loan Bank stock, at cost 2,102,000 2,056,000
Loans, net 124,312,781 119,142,785
Other real estate owned 75,000 180,000
Premises and equipment 2,248,711 2,399,607
Accrued interest receivable 1,575,524 1,383,349
Other assets 1,712,934 695,391
--------------- ----------------
Total assets $215,385,241 $217,226,220
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 28,317,523 $ 27,430,922
Interest-bearing 126,040,804
-------------
Total deposits 154,358,327 153,147,452
Federal Home Loan Bank advances 39,711,979 41,119,